Jul 23, 2002
Due to two unusual charges, PPL Corporation (NYSE: PPL) today reported a loss per share of $0.18 for the second quarter of 2002. The charges, primarily non-cash in nature, relate to CEMAR, PPL's Brazilian distribution company ($94 million or $0.64 per share), and to expenses incurred with regard to the seven percent reduction in the company's workforce announced last month ($74 million or $0.29 per share).
PPL reported second-quarter earnings from its core business operations of $0.75 per share, exceeding Thomson Financial's First Call consensus earnings estimate of $0.60 per share from core operations. PPL reported record second- quarter earnings of $0.80 per share from core operations a year ago.
This performance keeps PPL on track to achieve its 2002 earnings forecast of between $3.30 and $3.50 per share from core operations. In addition, PPL reaffirmed its projection, announced earlier this year, for mid-single-digit growth in earnings per share from core operations for 2003.
Second-quarter earnings per share from core operations were $0.05 lower than last year, primarily due to lower margins on energy sales in the western United States. The positive drivers for second-quarter core earnings were increased margins on energy transactions in the eastern United States and success in continuing to reduce operating costs.
"The continued relatively strong performance of PPL's earnings from core operations has demonstrated the value of our hedging strategy," said William F. Hecht, PPL's chairman, president and chief executive officer. "There continue to be many unanswered questions regarding the structure of our industry, and this has reinforced our belief in the value of multi-year sales contracts to reduce unpredictability in earnings, to reduce risk and to improve returns."
PPL's integrated corporate strategy encompasses generating and selling energy in key U.S. markets through an optimum balance of energy supply and customer load under multi-year contracts and operating high-quality energy delivery businesses in select regions. "Our solid performance in core operations in the second quarter and our reaffirmation of PPL's growth rate validate our strategy," Hecht said. "Our plans also call for maintaining a strong liquidity and credit-quality position to give us the flexibility to respond to changing business conditions, while serving as a platform to pursue disciplined growth opportunities," said Hecht.
About 82 percent of PPL's earnings from core operations in 2002 are expected to come from electricity generation that is dedicated to supplying energy under long-term contracts, from its regulated energy delivery business in Pennsylvania and from short-term energy sales in the first half of 2002.
By the end of this month, the company expects to place more than 1,000 megawatts of electricity generating capacity into commercial operation in new generating facilities in Illinois, Arizona and New York. Hecht said, "The new plants are uniquely positioned to serve the growing demands of the Chicago, Phoenix and Long Island metropolitan areas, where power imports are restricted because of transmission congestion."
PPL reported a loss of $0.20 per share for the first half of 2002, due primarily to several unusual charges. The company recorded a first-quarter charge of $1.02 per share related to changes in accounting rules for goodwill that affect its Latin American investments. Also affecting PPL's earnings for the first half of 2002 were the second-quarter charges associated with its Brazilian investment and its workforce reduction program.
Earnings from PPL's core operations in the first half of 2002 were $1.77 per share compared to $2.31 per share for the first half of 2001. While reflecting the lower margins on energy sales in the western United States from a year ago, this year-to-date performance keeps PPL on track to achieve its forecast for core earnings per share for 2002. The positive drivers of PPL's core earnings for the first half of 2002 were: increased margins on energy transactions in the eastern United States, improved earnings contributions from energy-related businesses such as PPL's synthetic fuel operations, and success in continuing to reduce operating costs.
For the 12 months ended June 30, 2002, PPL reported a loss of $1.29 per share due to impairment charges on PPL's Latin American and United Kingdom electricity delivery businesses, changes in accounting rules for goodwill that affect its Latin American investments, the decision to cancel several domestic power plant projects, staffing cuts associated with its workforce reduction program, and charges associated with the bankruptcy of Enron. These charges were partially offset by a credit to earnings relating to a change in pension accounting. PPL's 12-month earnings from core operations were $3.68 per share compared to $4.00 per share for the same period of 2001.
In late January 2002, PPL announced that it had taken an impairment charge of $217 million, for December 2001, with respect to CEMAR and also said it would provide no additional funding for CEMAR. That impairment charge represented the net asset value of CEMAR at the end of 2001.
In the first quarter of 2002, PPL recorded a $6 million pre-tax charge for an early-January investment made prior to its decision to invest no additional funds in CEMAR. In the second quarter of 2002, PPL recorded a charge for the balance of its exposure to CEMAR of about $94 million, an amount that was previously reported and that is primarily related to the cumulative translation adjustment (CTA). The CTA is the amount of currency devaluation of PPL's original investment in CEMAR since the date of purchase. That balance could not be written off previously because of applicable accounting rules.
On Monday, July 22, PPL announced a proposal to sell CEMAR to Franklin Park Energy LLC of McLean, Va. To expedite the transaction, CEMAR has requested that the Brazilian regulator act by mid-August on the sale proposal. If the transaction is approved, Franklin Park would purchase CEMAR for a nominal price and would assume the responsibility to operate CEMAR.
The proposed sale of CEMAR to Franklin Park does not affect PPL's earnings forecast. PPL has reiterated that any operating losses for CEMAR in 2002 would be offset accordingly upon exiting the investment in CEMAR.
PPL Corporation, headquartered in Allentown, Pa., controls or owns more than 10,000 megawatts of generating capacity in the United States, sells energy in key U.S. markets, and delivers electricity to nearly 6 million customers in Pennsylvania, the United Kingdom and Latin America.
(Note: All references to earnings per share in the text of this news release are stated in terms of diluted earnings per share.)
PPL CORPORATION AND SUBSIDIARY COMPANIES CONSOLIDATED FINANCIAL INFORMATION (UNAUDITED) Consolidated Balance Sheet (Millions of Dollars) June 30, 2002 Dec. 31, 2001 (a) Assets Current assets $1,777 $2,338 Investments 1,065 999 Property, plant and equipment -- net Transmission and distribution 2,677 2,566 Generation 2,521 2,464 General and intangible 311 310 Construction work in progress 315 181 Nuclear fuel and other leased property 116 127 Electric utility plant 5,940 5,648 Gas and oil utility plant 199 196 Other property 109 103 6,248 5,947 Recoverable transition costs 2,069 2,172 Regulatory and other assets 1,111 1,118 Total assets $12,270 $12,574 Liabilities and Equity Current liabilities $1,856 $1,838 Long-term debt (less current portion) 4,882 5,081 Deferred income taxes and ITC 1,500 1,449 Liability for above market NUG purchases 390 493 Other noncurrent liabilities 927 911 Minority interest 38 38 Company-obligated mandatorily redeemable securities 725 825 Preferred stock 82 82 Earnings reinvested 887 1,023 Other common equity 1,819 1,670 Treasury stock (836) (836) Total liabilities and equity $12,270 $12,574 (a) Certain amounts have been reclassified to conform to the current year presentation. Consolidated Income Statement (Millions of Dollars) 3 Months Ended June 30 6 Months Ended June 30 2002 2001(a) 2002 2001(a) Operating Revenues Utility $741 $695 $1,547 $1,522 Unregulated retail electric and gas 42 104 91 243 Wholesale energy marketing and trading 353 431 620 889 Energy-related businesses 165 181 318 323 1,301 1,411 2,576 2,977 Operating Expenses Fuel and purchased power 471 554 876 1,137 Other operation and maintenance 268 286 521 524 Amortization of recoverable transition costs 50 55 103 126 Depreciation 64 67 126 133 Energy-related businesses 146 162 272 275 Taxes, other than income 47 39 98 80 Other charges Write-down of international energy projects 94 0 100 0 Cancellation of generation projects 0 0 0 0 Workforce reduction 74 0 74 0 1,214 1,163 2,170 2,275 Operating income 87 248 406 702 Other income - net 7 6 12 12 Interest expense 100 88 197 192 Income (loss) before income taxes and minority interest (6) 166 221 522 Income taxes 4 35 66 161 Minority interest 2 1 3 3 Income (loss) before extraordinary items (12) 130 152 358 Extraordinary item (net of tax) 0 0 0 0 Income (loss) before cumulative effect of a change in accounting principles (12) 130 152 358 Cumulative effect of a change in accounting principles (net of tax) 0 0 (150) 0 Income (loss) before dividends on preferred securities (12) 130 2 358 Dividends - preferred securities 15 13 32 19 Net Income (loss) ($27) $117 ($30) $339 Earnings per share of common stock - basic Income from core operations $0.75 $0.80 $1.78 $2.33 Unusual items (0.93) 0.00 (1.98) 0.00 Net Income (loss) ($0.18) $0.80 ($0.20) $2.33 Earnings per share of common stock - diluted Income from core operations $0.75 $0.80 $1.77 $2.31 Unusual items (0.93) 0.00 (1.97) 0.00 Net Income (loss) ($0.18) $0.80 ($0.20) $2.31 Average shares outstanding (thousands) Basic 147,149 145,901 146,927 145,608 Diluted 147,508 146,700 147,275 146,471 12 Months Ended June 30 2002 2001(a) Operating Revenues Utility $3,059 $2,856 Unregulated retail electric and gas 204 521 Wholesale energy marketing and trading 1,410 2,015 Energy-related businesses 651 558 5,324 5,950 Operating Expenses Fuel and purchased power 1,867 2,397 Other operation and maintenance 1,021 1,051 Amortization of recoverable transition costs 228 244 Depreciation 247 256 Energy-related businesses 569 497 Taxes, other than income 173 162 Other charges Write-down of international energy projects 436 0 Cancellation of generation projects 150 0 Workforce reduction 74 0 4,765 4,607 Operating income 559 1,343 Other income - net 12 (10) Interest expense 392 388 Income (loss) before income taxes and minority interest 179 945 Income taxes 166 315 Minority interest (2) 6 Income (loss) before extraordinary items 15 624 Extraordinary item (net of tax) 0 11 Income (loss) before cumulative effect of a change in accounting principles 15 635 Cumulative effect of a change in accounting principles (net of tax) (140) 0 Income (loss) before dividends on preferred securities (125) 635 Dividends - preferred securities 65 32 Net Income (loss) ($190) $603 Earnings per share of common stock - basic Income from core operations $3.69 $4.02 Unusual items (4.99) 0.13 Net Income (loss) ($1.30) $4.15 Earnings per share of common stock - diluted Income from core operations $3.68 $4.00 Unusual items (4.97) 0.13 Net Income (loss) ($1.29) $4.13 Average shares outstanding (thousands) Basic 146,642 145,187 Diluted 147,025 145,977 (a) Certain amounts have been reclassified to conform to the current year presentation. Key Indicators Financial 12 Months Ended 12 Months Ended June 30, 2002 June 30, 2001 Dividends declared per share $1.25 $1.06 Book value per share (a) $12.71 $15.42 Market price per share (a) $33.08 $55.00 Dividend yield (a) 3.8% 1.9% Dividend payout ratio - diluted (b) 34% 27% Price/earnings ratio - diluted (a) (b) 9.0 13.8 Return on average common equity (b) 23.02% 30.26% (a) End of period (b) Based on earnings from core operations Operating - Domestic Electricity Sales 3 Months Ended June 30 6 Months Ended June 30 PPL Corp. (millions of kwh) Percent Percent 2002 2001 Change 2002 2001 Change Retail Delivered (a) 8,269 8,082 2.3% 17,372 17,963 -3.3% Supplied 8,687 8,928 -2.7% 18,315 19,481 -6.0% Wholesale East 5,288 4,259 24.2% 9,907 9,503 4.3% West Northwestern Energy/Montana Power (b) 1,200 1,048 14.5% 2,566 2,247 14.2% Other 1,811 743 143.7% 3,475 1,769 96.4% 12 Months Ended June 30 PPL Corp. (millions of kwh) Percent 2002 2001 Change Retail Delivered (a) 34,018 34,567 -1.6% Supplied 36,229 38,192 -5.1% Wholesale East 19,528 23,305 -16.2% West Northwestern Energy/ Montana Power (b) 5,036 4,757 5.9% Other 5,547 3,760 47.5% (a) Electricity delivered to retail customers represents the kwh delivered to customers within PPL Electric Utilities Corp.'s service territory. (b) Northwestern Energy purchased Montana Power's electric delivery business in February 2002. PPL Montana's power agreement with Montana Power expired June 30, 2002. PPL EnergyPlus, on behalf of PPL Montana, began selling energy to Northwestern Energy on July 1, 2002.
Certain statements contained in this news release, including statements with respect to future earnings, energy marketing, prices and delivery, corporate strategy, subsidiary performance, business disposition, growth, project development, accounting impacts, liquidity, and generating capacity, are "forward-looking statements" within the meaning of the federal securities laws. Although PPL Corporation believes that the expectations and assumptions reflected in these forward-looking statements are reasonable, these statements involve a number of risks and uncertainties, and actual results may differ materially from the results discussed in the statements. The following are among the important factors that could cause actual results to differ materially from the forward-looking statements: market demand and prices for energy, capacity and fuel; weather variations affecting customer energy usage; competition in retail and wholesale power markets; the effect of any business or industry restructuring; the profitability and liquidity of PPL Corporation and its subsidiaries; new accounting requirements or new interpretations or applications of existing requirements; operating performance of plants and other facilities; environmental conditions and requirements; system conditions and operating costs; development of new projects, markets and technologies; performance of new ventures; political, regulatory or economic conditions in countries where PPL Corporation or its subsidiaries conduct business; receipt of necessary governmental approvals; capital market conditions; stock price performance; foreign exchange rates; and the commitments and liabilities of PPL Corporation and its subsidiaries. Any such forward-looking statements should be considered in light of such factors and in conjunction with PPL Corporation's Form 10-K and other reports on file with the Securities and Exchange Commission.
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